Exponential Moving Average (EMA)
EMA is a technical chart indicator that tracks the price of a financial instrument over time. Investors use it to determine trend direction, support areas, and resistance regions. Like other MAs, the Exponential Moving Average doesn’t help predict the future. Instead, it can determine trend directions. KEEV makes the process of utilising EMA super easy for potential traders. o
In This Article
What is EMA?
How To Analyse Chart Using EMA
How To Use EMA on KEEV
Category
Trend
Type
Lagging
What is Exponential Moving Average?
Exponential Moving Average (EMA) is an extensively used technical chart indicator depicting the price of a security over a period. Unlike a Simple Moving Average or SMA that calculates an average of price data, EMA emphasises recent data like the latest prices.
Similar to other moving averages, EMA doesn’t help predict future prices. Instead, it only highlights the recent trends in a stock price. Experts formulated EMA to overcome some limitations of SMA.
Here’s the formula to calculate Exponential Moving Average: [Closing Price x Multiplier + EMA (previous day) x (1-Multiplier)]
How To Analyse Chart Using Exponential Moving Average
Determining Trend Direction
You can use EMA to determine the trend and trade in that particular direction on a technical chart. When you see the EMA rising in a chart like the one above, consider buying when the price dips below or near the EMA.
Conversely, you may sell when prices rally above or towards the EMA.
Indicating Support & Resistance Areas
While an increasing EMA supports the price action, a falling one provides resistance to price action. The predetermined prices of securities and assets beyond which they cannot fall are known as support levels. On the other hand, resistance levels are price limits of financial security beyond which it cannot rise.
These levels reinforce the strategy of selling when the price is near the falling EMA and buying when the price is near an increasing EMA.
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